Monday, March 26, 2012

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Mar 23, ‘12

S&P 500 Index Chart


In last week’s analysis of the S&P 500 index chart pattern, negative divergences were observed in the technical indicators, which failed to reach new highs as the index rose above the 1400 level. The index spurted to new intra-day and closing highs on Mon. Mar 19 ‘12, but on lower volumes. A brief correction followed, which got good support from the rising 20 day EMA.

The index is trading above all three of its EMAs, which are rising in tandem. The bull market seems to be gaining in strength. The technical indicators are bullish. The slow stochastic has slipped down to the edge of its overbought zone. The MACD is positive and touching its signal line. The RSI is above its 50% level. The ROC is positive.

The US economic indicators show that growth is still painfully slow. Initial unemployment claims dropped to 348,000 – its lowest level in 4 years. But new job additions are offering lower pay, which is leading to lower demand. Gasoline prices are trending higher. Industrial production remained flat in Feb ‘12. So did housing starts and existing home sales.

FTSE 100 Index Chart


Negative divergences in the technical indicators of the FTSE 100 index chart last week had signalled a possible correction. A sharp drop received good support from the 50 day EMA for the second time during the month. The index is trading above its 50 day and 200 day EMAs, so the bull market is not under any threat.

The technical indicators have weakened because of the corrective move last week – but remain mildly bullish. The slow stochastic hasn’t dropped below its 50% level yet. The MACD is below its signal line, but in positive territory. The RSI has slipped below its 50% level, but turning up. The ROC is positive.

UK’s manufacturers are facing a drop in demand, but expect order growth to improve. Inflation eased to 3.4% – thanks to lower gas and electricity bills. But higher food and oil prices may play spoilsport. Weak real income growth and desire to rebuild savings means that consumption growth cannot drive economic recovery.

Bottomline? Last week’s corrections in the chart patterns of the S&P 500 and FTSE 100 indices should improve the long-term health of the bull markets. Stay invested and enjoy the ride.

No comments: